Wednesday, January 29, 2014

U.S. court declines to sanction Samsung itself for use of confidential Apple licensing information

Late on Wednesday by local (California) time, United States Magistrate Judge Paul S. Grewal just handed down an order on motions for sanctions against Samsung and the Quinn Emanuel law firm over what I temporarily called the "Patentgate" affair involving allegations of improper use of highly confidential terms of Apple's license agreements with Nokia and other companies. Judge Grewal, who felt in early November that sanctions were warranted, concluded after further discovery efforts that "what began as a chorus of loud and certain accusations had died down to aggressive suppositions and inferences, and without anything more, Quinn Emanuel and Samsung cannot reasonably be subject to more punitive sanctions" than what he ordered:

"Quinn Emanuel shall reimburse Apple, Nokia, and their counsel for any and all costs and fees incurred in litigating this motion and the discovery associated with it, as required by Rule 37 in the absence of 'substantial justification' or other showing of 'harmlessness,' neither of which the court finds here. That expense, in addition to the public findings of wrongdoing, is, in the court's opinion, sufficient both to remedy Apple and Nokia's harm and to discourage similar conduct in the future."

In other words, Samsung itself is not sanctioned -- only the law firm of Quinn Emanuel. Presumably Samsung will pick up those costs.

The following passage from Judge Grewal's order explains why he found that, from a legal point of view, the further-reaching "creative" sanctions proposed by Apple and Nokia weren't warranted:

"The vast majority of these are ludicrously overbroad, such as the suggestion that both Samsung and Quinn Emanuel should be banned from any situation in which they might make use of licensing information for the next two years. Although the evidence has shown Quinn Emanuel failed to notify the relevant parties at the relevant times, and that [Samsung in-house lawyer Daniel] Shim made use of the information, there has been insufficient evidence that this failure to notify or misuse ultimately implicated any issue in this or any other litigation or negotiation. By the final hearing on December 9, 2013, this lack of clear evidence was obvious in the tone of the moving parties. Apple and Nokia's allegations had shifted, acknowledging that the evidence of misuse is 'circumstantial,' must overcome facial 'inconsistencies,' and that even they could only characterize it as 'more likely than not' that the information had been used. In short, what began as a chorus of loud and certain accusations had died down to aggressive suppositions and inferences, and without anything more, Quinn Emanuel and Samsung cannot reasonably be subject to more punitive sanctions."

This order by Judge Grewal can be appealed to Judge Koh, and then on to the Federal Circuit. Apple and/or Nokia could try to win further-reaching sanctions; Quinn Emanuel can try to avoid the sanctions that were imposed. Samsung has nothing to appeal because it wasn't sanctioned.

The order does not clear Samsung of wrongdoing: misuse is not ruled out at all, but Apple and Nokia were unable to prove the worst part of the original allegations. I'm sure Samsung is very happy about this outcome, also with a view to the March 31 California trial. It's not perfect for Samsung's reputation, but Samsung can now (or, at least, after all appeals are exhausted) say that nothing serious was proven, which is why Samsung itself was not even sanctioned. And Quinn Emanuel will also be more than pleased because it achieved its primary goal of defending its client. The efforts Quinn Emanuel made here in defense of Samsung, under extremely difficult and delicate circumstances, will probably have benefits for the firm that exceed the cost of these sanctions (which, I guess, Samsung will pick up anyway).

Motions for sanctions are still pending in other jurisdictions, including but not necessarily limited to the ITC and Australia.

In light of Judge Grewal's findings, I won't refer to this issue as the "Patentgate scandal" anymore, unless more serious wrongdoings are proven. At the beginning, things looked rather serious, and orders by Judges Koh and Grewal also expressed quite some concern over what (might have) happened. But at this stage, it would be over the top to call this a "scandal" or to liken it to Watergate. Samsung and Quinn Emanuel are innocent until proven guilty. The court didn't conclude that they're entirely innocent, but didn't identify a whole lot of guilt either.

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About Me

Florian Mueller is an app developer who used to be an award-winning intellectual property activist. His 30 years of software industry expertise span different market segments (games, education, productivity and infrastructure software), diverse business models, and technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof, except that he is long AAPL.) He is now developing games for smartphones and tablet computers.